The time line below contains an annuity with cash flow at the end of each period....

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Question

The time line below contains an annuity with cash flow at the end of each period....

The time line below contains an annuity with cash flow at the end of each period.

			$1,000		$1,000		$1,000	$1,000


0	1	2		3		4		5

The periodic market interest rate is 12%.

From the perspective of a potential investor at time 0 (zero), what type of annuity is described in the time line?

_________________

What is the total present value of the annuity at the end of period 1 (one)?

_________________

What is the total present value of the annuity at time 0 (zero)?

_________________

business accounting

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Answer 1

Answer #1


Req a: The annuity is referred as ordinary annuity where the annual cashflowws starts from the end of Year-2


Req b:
Year	Cashflows	PVF at 12%	Present value
1	0	1	0
2	1000	0.892857	892.8571
3	1000	0.797194	797.1939
4	1000	0.71178	711.7802
5	1000	0.635518	635.5181
Present value at the end of Year-1			3037.35

Req c:
Year	Cashflows	PVF at 12%	Present value
0	0	1	0
1	0	0.892857	0
2	1000	0.797194	797.1939
3	1000	0.71178	711.7802
4	1000	0.635518	635.5181
5	1000	0.567427	567.4269
Present value today at Year-0			2711.91

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Answer 2

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